10-QPeriod: Q3 FY2016

COLGATE PALMOLIVE CO Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 27, 2016For Securities:CL

Summary

Colgate-Palmolive Company's third-quarter 2016 report shows a slight decrease in net sales, primarily due to volume declines and negative foreign exchange impacts, despite a 3.0% increase in net selling prices. However, the company demonstrated resilience through a 4.5% increase in organic sales, excluding currency fluctuations and other adjustments, indicating underlying business strength. Profitability saw an improvement in gross profit margin, driven by cost savings initiatives and higher pricing, which helped offset increased raw material costs and the impact of the Venezuelan operations deconsolidation. While operating profit saw a GAAP decrease, adjusted figures show a slight increase, reflecting effective cost management. The company continues to execute its "Global Growth and Efficiency Program," impacting current expenses but aiming for long-term savings. Diluted earnings per share experienced a slight decline on a GAAP basis, though adjusted figures showed a modest increase, reflecting the company's ability to navigate a challenging global economic environment.

Financial Highlights

49 data points
Beta

Revenue

$3.87B

60.1% Gross Margin

Net Income

$702.00M

18.2% Net Margin

EPS (Diluted)

$0.78

Total Assets

$12.62B

Cash & Equivalents

$1.30B

Free Cash Flow

$997.00M

Financial Statements
Beta
Revenue$3.87B
Cost of Revenue$1.54B
Gross Profit$2.32B
SG&A Expenses$1.32B
Operating Income$1.07B
Net Income$702.00M
EPS (Basic)$0.79
EPS (Diluted)$0.78
Shares Outstanding (Basic)891.90M
Shares Outstanding (Diluted)899.20M

Key Highlights

  • 1Net sales decreased by 3.5% to $3,867 million in Q3 2016 compared to Q3 2015, primarily due to volume declines (-4.0%) and negative foreign exchange (-2.5%), despite a 3.0% increase in net selling prices.
  • 2Organic sales (excluding foreign exchange, acquisitions, divestments, and deconsolidation of Venezuelan operations) increased by 4.5% for the quarter, demonstrating underlying sales growth.
  • 3Gross profit margin improved by 140 basis points (GAAP) to 60.1% in Q3 2016, and by 160 basis points (non-GAAP) to 60.4%, driven by cost savings and higher pricing.
  • 4Operating profit decreased by 6% to $1,071 million on a GAAP basis, but increased by 1% to $1,022 million on a non-GAAP basis, indicating effective cost management despite one-time charges.
  • 5Net income attributable to Colgate-Palmolive Company decreased to $702 million from $726 million, and diluted EPS fell to $0.78 from $0.80.
  • 6The company continued to execute its "2012 Restructuring Program," with cumulative pretax charges of $1,156 million incurred since inception, aiming for long-term efficiency and savings.
  • 7Cash provided by operations increased by 10% to $2,317 million for the nine months ended September 30, 2016, compared to the prior year period.

Frequently Asked Questions

The primary drivers for the decrease in net sales were volume declines and unfavorable foreign exchange movements. While the company managed to increase net selling prices, these were not enough to offset the negative impacts from lower sales volumes and currency translations.

Colgate-Palmolive saw an improvement in its gross profit margin, both on a GAAP and non-GAAP basis. This was primarily attributed to cost savings from 'funding-the-growth' initiatives and the '2012 Restructuring Program,' along with higher pricing. These factors helped to mitigate increased raw and packaging material costs and the impact of deconsolidating its Venezuelan operations.

The '2012 Restructuring Program' is ongoing and aims to drive sustained growth and efficiency. It involves initiatives like expanding commercial hubs, streamlining global functions, and optimizing the supply chain. While the program has resulted in significant cumulative pretax charges ($1,156 million as of September 30, 2016), it is expected to generate substantial annual savings and enhance future cash flows. For the current quarter, restructuring charges impacted various financial lines, including cost of sales, SG&A, and other expenses.

On a GAAP basis, diluted EPS decreased to $0.78 in the third quarter of 2016 from $0.80 in the same period of 2015. However, when excluding certain items like restructuring charges, gains on asset sales, and benefits from tax matters (non-GAAP), the adjusted diluted EPS saw a slight increase to $0.73 from $0.72. This indicates that core operational performance, when adjusted for one-time events, remained stable or slightly improved.